James Grant shares with Barron’s readers his concerns about current thinking among Federal Reserve leaders, including Vice Chairman Richard Clarida.
Clarida acknowledged no doubts. He said that radical monetary policy has worked, that it will continue to work, and that it may well become more radical. He contended that low interest rates are here to stay and that new policy “tools” must be sharpened and kept at the ready. As to potential adverse consequences of administered rates and the mind-control games meant to “anchor” our collective expectations of the future, he mentioned none. …
… Clarida broached the idea of establishing a “temporary ceiling for Treasury yields at longer maturities by standing ready to purchase them at a preannounced floor price.” It was, in fact, how the Fed operated during World War II. Listening to the economist talk about emergency measures, it’s easy to forget that the nation is no longer fighting a two-ocean war.
This column would opine that artificially low interest rates never fail to store up trouble—facilitating leverage, they promote not growth, but larger balance sheets. It would opine, further, that the central bank is playing with fire by actively seeking to depreciate the dollar, a currency that, whatever its current lofty status in the world, is a piece of paper of no defined value. And it is our opinion that the Federal Reserve should at least consider the appealing course of letting the market alone.
